BustTheTipstersBanner JavaFiller


Bust The Tipsters
Rules and Prizes
Heroes and Villains
Archives

1997 Cases
Motley Archives

Case #23: Food for Thought


by Rick Aristotle Munarriz (MF Edible)

Rip Lawn was working his plate over. Glazing his cutlets in honey ginger had been pure genius. The winter blend of cauliflower and broccoli florets, accentuated with walnut slivers and peanut dressing, made the side taste like a centerpiece on any other dish. His two-hour wait for a table was more than worth it as he sucked the last of his martini out of a helpless olive. When the waiter cleared the table and brought out a slice of mint chocolate chip cheesecake, Rip knew that all his meals from that day forward could only disappoint.

Most of his co-workers had been raving about this restaurant, Ollie's House, ever since its Grand Opening a month earlier. His mother-in-law was so impressed that she had bought shares in the parent company, Ollie Holdings [Nasdaq: OLHO]. He pulled out the annual report she had sent, and he liked what he saw. The young company was profitable and growing. The balance sheet was as clean as his dessert plate as he skimmed off the last of his cheesecake.

He called for his bill, and as if the sound of money being exchanged was an irresistible attraction, The Churner pulled up a chair.

"Hey there Rip," Churn said. "My company just downgraded this company from Don't Buy to Short Me. I know you're going to come to the same conclusion. Let's open an account for you, we'll sell this puppy short, and then cover a week later when we upgrade from Short Me to Buy Me."

"Churner, right?"

The Churner hesitated, shook his head for a fleeting second, then nodded. His life was much like an item on Ollie's House dessert tray -- a fruit-filled turnover. Even his business card was double-sided. He was a greedy man's Janus, looking back to the commission he just made, and ahead to the one he was going to make. To him the grass was always greener, and why not? He made money every time his clients took a new step on the lawn.

"I've heard nothing but bad things about you," Rip said. "Your picks are awful. How are you still in business?"

"Volume baby, volume."

Rip knew that The Churner often disregarded even his own company's buy and sell recommendations. The running joke was that his analyst was a Magic 8-Ball. The Churner went on to tell Rip of accounting irregularities in Ollie Holdings's financials. He opened up the annual report and pointed out how strange it was that sales had doubled while same store sales were flat.

"I'd hate to be the CPA firm that signed off on this audited report," The Churner said, searching his pocket for matches to light his victory cigar. "Also, rumor has it that there is a real-life dachshund sitting on the Board of Directors. Can you imagine that?"

Just then a waiter with a jester cap handed Rip his bill and closed in on The Churner.

"Tell me this, Churner," Motley Fool said. "If Rip ate the meal, why are you the one looking around for the after-dinner mint?"

"Motley, my buddy," Churner said nervously. "Okay, okay, the dog got kicked off the board a year ago. He walked away with one heck of a severance package though."

"Enough," Rip said thumbing through the annual report. "Even I know this one. The reason sales doubled while same store sales were flat was that. . .

1) Each existing restaurant added new outdoor seating areas which doubled capacity.

2) The company went upscale, adding higher priced items like mint chocolate cheesecake and premium beverages, which found the average check per person double over the course of the year.

3) New units were opened at an aggressive pace.

4) All of the above.


The correct answer is #3, as brisk expansion at Ollie Holdings found revenues doubling even while the individual units were reporting unchanged sales. The first two choices, increased seating capacity and higher-priced menu items, may very well have an impact on sales but they would also have an impact on same-store sales. Those were flat, meaning that for units that were open during the entire year before sales remained at the same level the following year. If you picked #4, all of the Above... Shame, toss predictability into the hamper. Wait, let's listen in....

"Rip, you do a Fool proud," Motley said.

"Thanks, but I'm still not sure if this OLHO is a good investment or not."

"Well, you've fed your stomach pretty well today," Motley said, eyeing the dessert tray. "Now, feed your mind. Do some research and find out if you are comfortable with the company's valuation, given their past and future prospects. Kicking tires is a great start, now take a look-see at the engine under the hood."

The Churner struck a match and lit his stogie. The maitre'd rushed in, informed him that the restaurant had a strict No Smoking policy and ushered the defeated commission-gobbler outside.

"Fine, I'll go, and I don't need this," The Churner mumbled, tossing aside his cigar. "I quit last week. I'll quit again. You know, one week I'm smoking, the next I'm quitting. Then again, I guess it's in my nature."

© Copyright 1995-2000, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool. The Motley Fool is a registered trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us